Note: This is the first of a series of articles on remuneration.
By Mak Yuen Teen
Many years ago, I spoke at an overseas conference where one participant mentioned that disclosing remuneration in annual reports makes their executives more vulnerable to being kidnapped. Another participant whispered to me that his CEO did not want his remuneration to be disclosed because he did not want his wife to know how much he was paid.
These reasons may sound farcical but the fact is that explanations provided by many companies for not disclosing remuneration in accordance with the Code are laughable. Widespread use of boilerplate explanations has undermined the credibility of our “comply or explain” approach and remuneration is one area where this is particularly prevalent.
Copyright for cartoon belongs to Mak Yuen Teen and Chris Bennett
Copyright for cartoon belongs to Mak Yuen Teen and Chris Bennett
Rules not working
Since the 2012 Singapore Code of Corporate Governance, it has been recommended that the remuneration of each director and the CEO should be fully disclosed, including names, exact amounts and breakdown. Prior to that, band disclosure was recommended. Many companies continued not to comply, especially with respect to disclosure of exact amounts of remuneration.
The 2018 Code sought to change the situation. Principle 8 states: “The company is transparent on its remuneration policies, level and mix of remuneration, the procedure for setting remuneration, and the relationships between remuneration, performance and value creation.”
Provision 8.1 states:
“The company discloses in its annual report the policy and criteria for setting remuneration, as well as names, amounts and breakdown of remuneration of:
- each individual director and the CEO; and
- at least the top five key management personnel (who are not directors or the CEO) in bands no wider than S$250,000 and in aggregate the total remuneration paid to these key management personnel.”
Principles were made mandatory under the 2018 Code so companies that do not comply with provisions must still comply with the principles. In terms of remuneration disclosure, the principle requires companies to be transparent in all those areas stated.
However, the expected improvement has not happened. The recent Singapore Directorship Report 2021 shows that 54% of companies here still disclosed the remuneration of all directors only in bands and 7.8% made no disclosure. This compares with 66.8% in total of companies which disclosed in bands or made no disclosure in the 2018 report, which was based on the 2012 Code. The improvement is marginal.
Even for independent directors (IDs) and non-independent non-executive directors (NINEDs), more than than 50% still disclosed in bands or not disclose at all. I find this particularly disappointing as IDs are supposed to help ensure good corporate governance and transparency in companies they serve in, and ought to start by insisting that their own remuneration is disclosed.
Many companies are still justifying departures from Provision 8.1 and claiming that they are complying with Principle 8 even when they disclose the remuneration of individual directors and the CEO in bands. Further, criteria for setting remuneration remain vague for many companies, with few companies disclosing specific performance measures used, and disclosures about the relationships between remuneration, performance and value creation are rare.
Meaningless band disclosures
Although now only a small minority, there are still companies that disclose the remuneration of their highest-paid directors in an unlimited top band.
At Chip Eng Seng, which was a family controlled and managed company until a change of controlling shareholder in 2019,  the remuneration of its highest paid executive directors (EDs) is disclosed in an unlimited top band of “Above $1,000,000”, including the remuneration of the Group CEO Mr Raymond Chia, son-in-law of the founder. Using information from the notes to the financial statements and based on certain assumptions, I estimate that he was paid up to S$4.97 million, S$6.97 million, S$3.31 million and S$2.24 million in FY2017, FY2018, FY2019 and FY2020 respectively – well above the lower limit of the unlimited top band. His variable remuneration includes a profit-sharing element and the recent decline in his remuneration coincides with the fall in profits.
The company said it did not disclose the exact remuneration of each individual ED because the information is “commercially sensitive” and it “operates in a highly competitive environment where poaching of employees is fairly common”. There is little reason to expect that a family member of the founder would be poached. Talent is not poached through companies or recruitment consultants examining remuneration tables in annual reports – but this is somehow an acceptable reason in our regime.
Chip Eng Seng also does not disclose the individual remuneration of the top five key management personnel (KMP) in bands as recommended by the Code, saying that this is “in the interest of maintaining good morale and a strong spirit of teamwork within the Group”. This hints at concerns with perceived pay inequity within the Group. It is the responsibility of companies to communicate the rationale for pay differences, not for rules to shield companies from perceived pay inequity.
It also does not disclose the exact remuneration of its IDs and NINEDs, only disclosing in a band of “Below S$200,000”.  There is no justifiable reason for not disclosing the exact remuneration of such directors.
But at least Chip Eng Seng has been profitable until FY2020 and consistently paid dividends to shareholders, even in FY2020 when it reported a significant loss. This was not case with Noble Group where its EDs were paid large amounts which were not properly disclosed, even as the company went into its financial meltdown.
In its FY2017 annual report, Noble disclosed the remuneration of its four EDs as “S$1,500,000 and above”. The actual remuneration turned out to be nearly US$20 million for one of the EDs, Mr Jeffrey Frase, the co-CEO who resigned that year. His remuneration included a lump-sum payment of US$3.8 million and a US$3.82 million loan written off. The other three EDs were paid a total of about US$15 million. One of the EDs who was co-CEO, Mr William Randall, had a bonus amounting to 72% of his total remuneration when the company reported a net loss of nearly US$5 billion. Another KMP, possibly him, had a US$1.18 million loan written off.
All in the family
The 2018 Code relaxed the remuneration disclosure threshold and band for employees who are immediate family members of a director or CEO, although it added the disclosure of remuneration of employees who are substantial shareholders of the company and their immediate family members. The minimum disclosure threshold was raised to S$100,000 and the bands widened to S$100,000. This reversed the tightening introduced in the 2012 Code when the disclosure threshold was reduced from S$150,000 to S$50,000, and the bands narrowed from S$250,000 to S$50,000.
There are many listed family companies with multiple family members drawing remuneration from the company. For example, in Chip Eng Seng’s FY2018 annual report, five family members who were employees are listed as having received remuneration in bands of S$250,000 to S$299,999, S$350,000 to S$399,999, and S$500,000 to S$549,999. The nature of their relationships with a director is disclosed but the roles of three of them are not disclosed anywhere in the annual report.
At Hong Fok Corporation, its FY2020 annual report states:
“For FY2020, the Company wishes to disclose the remuneration of the employees who were substantial shareholders of the Company, or were immediate family members of a Director, Joint CEOs or a substantial shareholder of the Company, and whose remuneration exceeded $100,000 during the year, in bands of $250,000, as opposed to bands of $100,000, which constitutes a variation from Provision 8.2 of the 2018 Code. The Company is of the view that the intent of Principle 8 of the 2018 Code was met, as the remuneration policies and the procedure for setting remuneration applicable to the key management personnel of the Company are described above….Moreover, the employees are in senior positions and considered as key management personnel, hence the disclosure made in bands of $250,000 would be meaningful to investors as to the level of remuneration paid to these employees. In addition, the Company believes that the disclosure of the detailed remuneration packages of employees, including those who are substantial shareholders of the Company, or are immediate family members of a Director, Joint CEOs or a substantial shareholder of the Company would be prejudicial to the Company’s interests and hamper its ability to retain and nurture the Group’s talent pool and hence have chosen to make disclosures in relation thereto in bands of $250,000 (instead of in incremental bands of $100,000).”
ASTI Holdings was even less transparent. In my article “Tis the season to be wary for minority shareholders at three companies” (Business Times, 19 December 2019), I wrote this about the remuneration of the son of the Executive Chairman and CEO at ASTI Holdings:
“Mr Loh also has a 31-year-old son whose remuneration was disclosed for the first time in ASTI’s FY2018 annual report…The disclosure stated that his remuneration exceeded S$50,000 rather than in a band – which is not in accordance with the Code of Corporate Governance….I could not find any announcement of his son’s appointment (or promotion) under rule 704(7), which requires “any appointment of a person who is a relative of a director or chief executive officer or substantial shareholder of the issuer to a managerial position in the issuer or any of its principal subsidiaries” to be announced. Rule 704(13) also requires the full-year results announcement to disclose such appointments. In its last (delayed) full-year announcement issued on March 31, 2019, the company disclosed that two of Mr Loh’s nephews occupy managerial positions pursuant to rule 704(13), but there was no mention of his son. It was only in a April 12, 2019 response to SGX queries that his son’s promotion to “manager, admin/HR/IT” was disclosed.”
It appears that SGX did not query further the disclosure of the son’s remuneration in an unlimited band and why this was not disclosed earlier.
The corporate governance report in the FY2019 and FY2020 annual reports did not disclose the remuneration of the son and, unlike the FY2017 report, did not include a negative statement that “there are no employees who are immediate family members of a director or the group CEO and whose remuneration exceeds S$50,000…”. It is unclear if his son has left the company or it did not disclose because the 2018 Code raised the disclosure threshold from S$50,000 to S$100,000.
Contrast the above companies with Micro-Mechanics, which went far beyond what is recommended in the Code and made the following disclosure in its FY2021 annual report:
“Mr. Kyle Borch, the eldest son of Mr. Christopher Borch joined Micro-Mechanics, Inc (a subsidiary of the Company) on 27 August 2018 as a Manufacturing Engineer. Mr Borch received a Bachelor in Science in Physics and Math from the University of California Los Angeles (UCLA) in 2014 and Master in Science degrees in Mechanical Engineering and Engineering Management from the University of Southern California in 2018. Mr Borch’s current role is non-managerial with total remuneration during the financial year ended 30 June 2021 of approximately S$131k. The Remuneration Committee has reviewed and approved the remuneration package of Mr.Kyle Borch.”
Improving transparency
I do not see any reason why the remuneration of every employee who is a substantial shareholder, or a family member of a director, CEO or substantial shareholder, should not be disclosed in exact amounts – at least when they exceed a certain minimum amount of say $50,000. What harm can this do to the interest of the company? Maybe some family members who are not involved in the business may be unhappy learning how much other family members are paid, but this is for the family to sort out.
In fact, disclosure should extend beyond immediate family members as currently defined in the rules to include other family members such as in-laws, nephews, nieces and cousins – something similar to the definition of deemed connected persons for connected person transactions under the Hong Kong Exchange listing rules.
The position of the family member should also be disclosed – the Code only states that the employee’s relationship with the relevant director, CEO or substantial shareholder should be disclosed.
Remuneration paid to major shareholders and such employees are in substance no different from interested person transactions (IPTs). SGX rules require the exact aggregate amount of IPTs with each interested person to be disclosed (excluding IPTs of less than S$100,000), so why should the same not apply to remuneration? Remuneration tends to be recurring and total remuneration paid to a family member could become quite substantial over time.
In a 2018 study with Chew Yi Hong, we found that companies that were less transparent about remuneration tended to pay relatively more to directors and other key management personnel (KMP) compared to their peers in the same market capitalisation category. This is inconsistent with the “poaching” excuse often used by companies for not complying with the Code and more consistent with companies attempting to hide high remuneration by not fully disclosing how much they are paying. We also found that companies with family members in the company – which are often also less transparent – generally pay higher remuneration compared to peer companies which did not have family members.
Minority shareholders can step up
At Raffles Education, Mr Oei Hong Leong, who was a minority shareholder, exercised his right under section 164A of the Companies Act to compel Raffles Education to be more transparent about remuneration paid to its directors. His requisition forced the company to release a 12-page audited statement on 15 October 2021 which contains the names and emoluments and other benefits paid to every director of the company and its 81 subsidiaries.
Through the requisition, shareholders learnt that Mr Chew’s exact remuneration for FY2021 is $2,893,053. His remuneration was disclosed as “Between S$2,750,000 to S$3,000,000” under the remuneration table in the corporate governance statement. bonus based on profit sharing.
Minority shareholders in other listed companies which choose not to fully disclose directors’ remuneration should follow the lead of Mr Oei and submit requisitions for an audited statement of the remuneration of each director of the company and all its subsidiaries. This may over time force more companies to fully disclose. Unfortunately, they would only be able to do so if they own at least 5% of the ordinary shares and if the companies are incorporated in Singapore.
Regulators should strengthen the rules
But why should the right to full disclosure of the exact remuneration paid to each individual director be limited to those Singapore-incorporated companies where minority shareholders hold 5% or more of the shares and are able to requisition for such disclosure?
Many other markets have rejected excuses for not disclosing exact remuneration of directors and mandate such disclosures. In Asia, Hong Kong legislates disclosure of  remuneration of individual directors while Malaysia requires disclosure through listing rules. Japan requires listed companies to disclose the names and exact amounts paid to executives whose remuneration exceeds 100 million yen (approximately S$1.2 million). Therefore, mandatory remuneration disclosure for individual directors is not just a “Western” practice.
In the case of Raffles Education, the exact remuneration and breakdown for each individual director of Oriental University City Holdings, its subsidiary listed on GEM in Hong Kong, has to be disclosed but the same is not the case for the directors of Raffles Education here.
We should align our rules with the more transparent jurisdictions and make it mandatory in the listing rules for companies to disclose the exact remuneration of each individual director, together with the breakdown. It should not be based on “comply or explain”.
Despite 20 years of corporate governance reforms, director and executive remuneration remains an Achilles heel of the Singapore corporate governance regime. It is time regulators, directors and investors pay more attention to remuneration policies and disclosures.
In the remaining articles in this series on remuneration, I will discuss some specific problems associated with remuneration policies for companies listed here and the challenges ahead in aligning remuneration policies with environmental, social and governance (ESG) factors.
